3771.T

• Financial Performance:
  • Consolidated interim results delivered double-digit growth in revenue and all profit levels, marking 4 consecutive periods of revenue and profit growth with new all-time highs. Gross profit was 3.187 billion yen (+16.1% YoY), operating profit 1.519 billion yen (+24.3% YoY), ordinary profit 1.531 billion yen (+23.6% YoY), and net income attributable to parent company shareholders 1.121 billion yen (+24.5% YoY).
• Strategic Framework (Next Vision 50th):
  • Core business expansion and advancement: Acquire high-value clients in Kanto and Kansai markets in addition to the Chubu region, and expand specialized solutions in core competency areas.
  • Challenge for next-generation businesses: Leverage core business expertise to develop new businesses that can become future core pillars alongside existing SI services.
  • Technological capability for new value creation: Build engineering capabilities that combine core skills and digital technology to solve social and management challenges.
  • Strengthen human capital and back-office functions: Support organizational growth via human capital development through improved workplace environment, branding, and enhanced recruitment, plus strengthened back-office via internal DX, enhanced security, and improved governance.
  • Deepen employee engagement: Build frameworks that align with company vision and boost employee solidarity to enable mutual growth for the company and staff.
• Business Solutions Highlights:
  • Core SI and software development: Deliver end-to-end SI services from consulting to system introduction, and generate stable recurring revenue from repeat orders for system updates and replacements via ongoing maintenance. Has deep expertise across automotive, logistics, manufacturing, and other sectors.
  • EC support services: Subscription-based "Easy My Shop" service had ~17,000 contracts and 11 billion yen in total distribution volume as of March 2025, plus operates the creative marketplace "Aruru".
  • Irii Product packaged solutions for SMEs: Portfolios include Simplex (e-commerce focused, ~750 clients), CTI Connectel (call center efficiency, ~1,700 clients), WArm+ CRM (~5,000 clients), and the BIG Series (~3,000 clients).
  • New AI solutions: Recently launched "Passby" RAG-powered AI chatbot for customer support and internal use; running joint research with Nagoya University Hospital on generative AI-powered document search service "DejiQuery" to develop a medical version and expand to other sectors; supported development of AI-powered automated suitcase damage insurance claim payout service.
• Sustainability and HR:
  • 11.2% female employee share, 100% female childcare leave take-up, 53% male childcare leave take-up (above national average), 14h15m average monthly overtime, 79.2% paid leave take-up, 8.4% turnover rate (below industry average). Holds multiple external certifications including DX Certified Business Operator.
• Shareholder Return:
  • Maintains a stable dividend policy with a target payout ratio of 40%. Selected as one of the 40 most promising listed companies on the Tokyo Prime Market in the Minkabu Awards 2024.

• Full-year FY2026 (ending March 2026) guidance is maintained: Revenue is projected at 29.314 billion yen, up 13.0% year-over-year; operating profit up 14.9% YoY; ordinary profit up 14.3% YoY; net income attributable to parent company shareholders projected at 2.535 billion yen, up 15.5% YoY.
• 3-year medium-term management plan targets 10%+ annual revenue growth, reaching 36.776 billion yen in consolidated revenue and 4.4 billion yen in consolidated operating profit by FY2028 ending March 2028, with a target of 2,000 consolidated employees.
• Longer-term targets are 50 billion yen in revenue for the medium term, and 100 billion yen in revenue for the long term.
• Legacy system modernization demand is projected to continue through approximately 2030.

1. SI Service Business: Revenue increased 5.4% year-over-year to 5.346 billion yen, accounting for 37.7% of total consolidated interim revenue. Growth was driven by increased contracted orders. 2. Software Development Business: Revenue increased 16.8% year-over-year to 8.104 billion yen, accounting for 57.1% of total consolidated interim revenue. Growth came from securing strong repeat orders. 3. Software Products: Revenue decreased 11.8% year-over-year to 0.189 billion yen, accounting for 1.3% of total consolidated interim revenue, due to sluggish packaged software sales. 4. Product Sales: Revenue increased 83.4% year-over-year to 0.405 billion yen, accounting for 2.9% of total consolidated interim revenue. 5. Web Services and Other: Revenue decreased 21.8% year-over-year to 0.148 billion yen, accounting for 1.0% of total consolidated interim revenue. Total consolidated interim revenue was 14.194 billion yen, up 12.3% year-over-year.

• Severe IT engineer shortage: Industry projections indicate a potential shortage of up to 790,000 IT professionals by 2030, which could limit the company's ability to take on additional projects.
• Generative AI disruption risk: While generative AI can improve development efficiency and alleviate labor shortages, there is risk that it could replace traditional SIer roles, leading to order volume declines, lower project pricing, and reduced revenue.
• Industry restructuring pressure: The company faces challenges from ongoing industry consolidation via M&A and business integrations, and must adapt to shifting competitive dynamics.
• Strategic transition challenge: The company is working to shift from contract-based development to a higher value-added SIer model, which carries execution risk.

Q: Does System Research pursue legacy system modernization projects directly or in partnership with larger firms, and how long does management expect this demand to last? / A: The company pursues modernization work through two models: direct contracts for end clients (such as Toyota), and as a first-tier subcontractor leading application development for infrastructure projects led by network-focused hardware/software vendors. Management expects this modernization demand to continue through around 2030, as large Japanese firms must shift legacy mainframe systems to cloud-native, DX-compatible architectures to maintain competitiveness.

Q: Is the rise of generative AI a net positive or a risk for System Research, and what is management doing to prepare for its impact? / A: Currently generative AI only improves efficiency for basic code writing and partial testing in SI development; full end-to-end system integration still requires human work for specification setup, integration, and validation, so no major near-term impact is expected. Management's primary response is to proactively train engineers to work with AI, cloud, and DX technologies, matching the pattern of rising demand for skilled cloud professionals during the recent legacy migration wave. The full long-term impact on the business remains uncertain.

Q: What prompted the correction to the consolidated cash flow statement? / A: The correction was required due to misapplied accounting for the company's newly introduced restricted stock compensation (RS) plan for executives. As this was the company's first time implementing this program, it initially used an improper offsetting treatment between financing and operating cash flow. The audit firm subsequently identified that the offset was unnecessary, so the company corrected the statement to reflect proper GAAP-aligned accounting.